Exercise 15-16 Segmented income statement LO 8

Vogel Co. produces three models of heating and air conditioning thermostat components. The following table summarizes data about each model:

	BV19			HV41			MV12
Selling price per unit	$	16			$	20			$	10
Contribution margin per unit		4				7				2
Units sold per month		7,000				3,000				10,000
Total contribution margin	$	28,000			$	21,000			$	20,000
Direct fixed expenses		10,600				7,800				14,500
Segment margin	$	17,400			$	13,200			$	5,500
Allocated company fixed expenses		7,700				3,300				11,000
Operating income (loss)	$	9,700			$	9,900			$	(5,500	)

Required:

a.On what basis does the $22,000 of company fixed expenses appear to be allocated?

The $22,000 of company fixed expenses is apparently being allocated based on the number of units of each model sold.

The $22,000 of company fixed expenses is apparently being allocated based on the contribution margin per unit of each model sold.

The $22,000 of company fixed expenses is apparently being allocated based on the selling price per unit of each model sold.

b.Calculate the effect on total company net income if the MV12 model were discontinued.

c.Calculate the contribution margin ratio for each model.(Enter your percentage answers as a whole number.)

d.If an advertising campaign focusing on a single model were to result in an increase of 5,000 units in the quantity of units sold, which model should be advertised?

HV41

BV19

MV12

e.If an advertising campaign focusing on a single model were to result in an increase of $34,000 in revenues, which model should be advertised?

HV41

BV19

MV12